On April 30, 2015, the Ohio Supreme Court issued an interesting opinion in Hillenmeyer v. Cleveland Bd. of Rev., Slip Opinion No. 2015-Ohio-1623. In that case, the court found that the “application of ‘games-played’ method of allocating nonresident professional athlete’s income to city, resulting in taxation of income from work performed outside of city, violated [an] NFL player’s right to due process.” Hunter Hillenmeyer played for “da Bears” from 2004 – 2006, and played one game a year in Cleveland, and a tax was withheld from a portion of Hillenmeyer’s income. The portion of the income the city claimed was attributable to the time in Cleveland was based on a “games played” calculation, basically the ratio of games played in Cleveland over all games played. Hillenmeyer’s position made common sense:
As a nonresident of Cleveland, Hillenmeyer asserts that Cleveland has adopted an unlawful method of computing the amount of his compensation that is subject to its city income tax. The games-played method, he argues, dramatically overstates his Cleveland income, because his compensation as an NFL player includes earnings not only for the games he played, but also for the training, practices, strategy sessions, and promotional activities he engaged in.
The court essentially agreed with Hillenmeyer based on due process grounds, holding:
Due process requires an allocation that reasonably associates the amount of compensation taxed with work the taxpayer performed within the city. The games-played method results in Cleveland allocating approximately 5 percent of Hillenmeyer’s income to itself on the basis of two days spent in Cleveland. By using the duty-days method, however, Cleveland is allocated approximately 1.25 percent based on the same two days. By using the games-played method, Cleveland has reached extraterritorially, beyond its power to tax. Cleveland’s power to tax reaches only that portion of a nonresident’s compensation that was earned by work performed in Cleveland. The games-played method reaches income for work that was performed outside of Cleveland, and thus Cleveland’s income tax violates due process as applied to NFL players such as Hillenmeyer.
The full opinion can be found here.
Daniel Layton, the author of this post, is the principal of Tax Attorney OC.